Lapeyre, Wolters Kluwer, Xerox, …
The last two years have been marked by a new type of dispute, characterized by the incursion of the civil judge in the determination of transfer pricing and taxpayers’ tax results. In those three cases, the Unions representing companies’ employees asked to the civil court to challenge the calculation of the profit-sharing reserve (“participation”). They argued that tax result of their company – which is the basis for calculating the employees’ right to profit sharing – was not representative of their employer’s actual economic results.
Thus, in the Lapeyre case, the trade unions criticized the Company for having organized a profit shifting to two holding companies of the group with no employees, driven by willingness to reduce results of the operating entities comprising the bulk of the workforce and, by the same token, depriving the employees of the group for sharing profit. They, therefore, asked to the Nanterre District court to recalculate the profit sharing due to employees at the Group level, instead of the level of each legal entity, in order to compensate employees for losses for profit sharing caused by the group’s structural and economic organization.
In Wolters Kluwer case, the trade unions considered that the restructuring operation borne by their employer prevented any payment of profit sharing to employees. The subscription of an intra-group loan heavily indebted the company and prevented any payment of profit sharing to employees. The Versailles Administrative Court of Appeal declared the action brought by the unions well founded and considered the contested restructuring operation was a fraudulent practice. The case was then appealed to the Supreme Court.
Finally, in the Xerox case, trade unions criticized commission agent scheme adopted by the company. They asked to determine the amount of profit sharing that would have been due to employees since March 2006, if the company had remained a distributor and had not adopted the status of commission agent. As the Paris Administrative Court of Appeal held a decision in favor of unions’ requests, a Supreme Court appeal was formed (Paris Administrative Court of Appeal, September 8th 2016, n°14/17467).
In this context, the solution held by the Supreme Court to resolve these profit sharing disputes was particularly awaited. On February 28th 2018, the Supreme Court repealed the Versailles Administrative Court of Appeal decision relating to the Wolters Kluwer case, holding that “the amount of the special reserve for sharing profit may not be called into question by the judge when that amount has been certified by a Statutory auditor, even in an event of fraud invoked by trade unions” (French Supreme Court, Social Chamber, February 28th 2018, n°16-50.015).
This decision reinforces the judgment of December 26th 2017 of the Nanterre District court in the Lapeyre case. According to the court:
Wrongful acts – if they exist, and without it being necessary to examine them – cannot have the effect of modifying the legal reference framework and lead to the calculation of the sharing profit to which a different perimeter can be claimed(Nanterre High Court, September 26th 2017).
This decision of the Supreme Court can be considered as a leading case, and therefore puts an end to the risk of transfer pricing discussions before the judicial judge. Indirectly, the case reaffirms the fact that this question remains a prerogative of the administrative judge, through the control of the tax administration.